An incorrigible Cognitive Dissident

DEUTSCHE BANK: IS THIS THE MAN WHOSE ACTIONS WILL DESTROY THE WEST’S ECONOMIC AND FISCAL FABRIC?

The biggest bank in the EU is also one of the most over-leveraged and under-capitalised. The Slog offers a less than flattering portrait of the man at the top of Deutsche Bank.

I remember only too well reading the bullish soundbites of former RBS boss Fred Goodwin in 2008. It is my sad duty to report that the person in banking right now who most resembles the uber-confident crap put out by Goodwin – or ‘badloss’ as wags took to calling him – is Josef Ackermann, the chap in charge of what is now officially Europe’s biggest bank, Deutsche.

Equally, he has the same swaggering anti-politician, anti-regulation attitude that so marks out Lloyd Blankfein from the run of not quite so completely ignorant Wall Street bankers. Ackermann was among the first to chastise IMF bossette Christine Lagarde for having the temerity to suggest last year that some large European banks were in need of “urgent recapitalisation”. Sloggers will know already that I am no Lagarde fan – indeed, she did a volte-face herself on this very issue when she joined the IMF. But I have no hesitation on this occasion in saying she is right, and Ackermann is talking out of another orifice entirely, some distance from his mouth.

Ackermann’s bank – which has been assiduously adding assets as other lenders did the opposite – this week overtook France’s BNP Paribas SA to take back the mantle of being Europe’s largest bank. Its assets rose 14% to 2.16 trillion euros during the last 2011-12 fiscal year. But wise heads in both Europe and the US have their doubts about Herr Ackermann….and in my view, with a great deal of justification.

A year ago, MIT professor and former IMF staffer Simon Johnson called Deutsche CEO Josef Ackermann “one of the most dangerous bankers in the world.” He fingered Ackermann as the crazy author of Deutsche Bank’s longstanding profit target of 25% return on equity, and what he called “excessive risk taking” there. And London-based banking analyst at Mediobanca SpA Christopher Wheeler told Bloomberg this week that “leverage and lack of capital are impacting Deutsche Bank’s valuation”. The message is clear: there is too much risk on Deutsche’s balance sheet, and not enough capital to back it up. The motive behind this is, once again, greed. The higher a bank’s leverage, the higher the returns when times are good. And when times are bad, Ackermann is cute enough to think that he too is Too Big To Fail, and will be rescued by the taxpayer.

Greek debt purchased over the years by the bank offers a classic example. Last year, the Deutsche boss told a bankers’ seminar that many of them could be swallowed by competitors if they had to mark down their entire sovereign debt holdings to real-world market values. He told his audience that it was “stating the obvious that many European banks would not survive having to revalue sovereign debt held on the banking book at market levels”, an assertion that subsequent events might suggest was deranged rather than obvious. Nevertheless, having said this, once Josef Ackermann privately saw the writing on the wall – around July 2011 – he was quick to use his relationship with Merkel to organise a grubby deal restricting Beutsche Bank’s Greek haircut to 21%….the rest being digested by the unfortunate German taxpayer. Not many commentators are aware of the arrangement; but those in Berlin who detest Herr Ackermann are only too aware of it.

Largely as a result of that deal – and wacko Acko’s incessant anti-Government public statements – his previously close relations with Merkel have become distinctly chilly. The German chancellor believes European banks need more capital, and far stricter stress tests. Bizarrely, Ackermann’s stated view is that Deutsche Bank doesn’t need capital, and regards itself as above the stress-test ideas of ‘interfering politicians’. Bob Diamond, David Buik, Freddie Goodwin….they all spout the same MoU bollocks.

American regulators too have every reason to dislike this man whose self-belief is rarely borne out by events. When debt markets rallied in 2009, the bank posted a return on average equity of 14.6%. The following year, as Europe’s sovereign-debt crisis went from worse to awful, margins fell to 5.5%. Ackermann’s ‘business model’ is not that different from Northern Rock’s Adam Applegarth: it is built for good times, on the idiotic assumption that there will no longer be any bad times….or even worse, interesting times.

But bad times are always just around the corner for dumbos. Deutsche Bank was one of the largest recipients of US dollars in the aftermath of 2008. This received near-zero coverage in the financial media, but the fact remains that, just three few months before receiving billions of dollars from the Fed as part of the AIG fiasco, Ackermann had paid his shareholders some 2.6 billion euros in dividends. Since then, it has paid out an additional 1.7 billion in dividends. Be in no doubt: Josef Ackermann is a sort of libertarian/corporate Robin Hood: he believes in taking from the sovereign rich, and giving to the private stinking rich.

When Ackermann retires in two months time, his legacy is likely to be a balance sheet 40% bigger than that of 2006, and 80% of the entire size of the Bundesrepublik economy. In the light of any lessons learned at all from 2008 – and the completely potty idea of one bank with a balance sheet at four fifths of easily EU’s biggest economy – on the whole I think The Slog is justified in suggesting that Deutsche Bank is not so much an accident waiting to happen, as a certainty about to scorch the Earth of anyone speaking a European language.

Morning all ,
Fair dos to JW for highlighting the German role and resposibility in this affair , BUT Deutsche is a “London ” investment bank , and German to a certain degree in name only .Its a classic case of the tail wagging the dog .Thats why they needed to get hold of Deutsche Postbank … to make them seem more German in the eyes of the Germans . Neither Ackermann (Swiss ) or Jain are Germans . None of this matters really though as it is indeed a ‘too big to fail’ accident waiting to happen .

Deutsche Bank AG’s total assets as of 12/2011 were eur 2164 billion while total equity was eur 54.6 billion. That corresponds to 40 to 1 leverage. Put more simply that would mead putting down £50’000 as a deposit for a £2’000’000 house and as a result taking on a mortgage of £1’950’000! Totally crazy.

Even worse Broeksmit was the key player in the Orange County derivatives scandel in the early 1990s, designing the structures and determining the profitability. (Stuffing investors with crappy investments is not new). Merrill had to pay $470million when that was real money. He eventually tried to cover his influence by writing a letter after a couple of years of enjoying profits/bonuses from the business saying Orange County had too much risk (which Broeksmit had designed and provided to the salesman – and who took the official fall in public opinion- but could not understand what he was selling). Jain knew Broeksmit over this period and knows of the real, not official issues, from that time. What this means or could have meant for DB is a bit scary.

Whenever I see a project and wonder “who would have been dumb enough to fund that?” the answer is always Deutsche Bank. Any country, any type of project – the only test seems to be if the idea is grandiose.

Deutsche Bank is hardly a German bank anymore although the Krauts will be left to clean up the mess. It was a boring bank representing German govt interests until it got the internationalisation bug in the 90s and took over that American disaster Wankers Trust, the epitome of quant finance and the root of Deutche’s derivative problems.

Ackermann himself is Swiss and something of an outsider in tight knit German circles. He can go home in his retirement safe from any German courts if the bank gets into trouble. Ackerman was Chairman of the Institute of International Finance (Dallara’s think tank) and, along with his predecessor Sir John Bond, is an example of the insidious way the US envelopes and seduces foreigners into thinking they are in reality giants in pygmy bodies. I could see this happening before my eyes at the annual meetings of the IIF board. The consequence of this seduction is felt by their shareholders and tax payers whilst they line their personal trust accounts.

There are certainly a lot going on at the Deutsche Bank, the most visible of which seems to be the succession struggle. You probably know that Joseph Ackermann is now a lame duck waiting for his retirement. He wanted to designate Axel Weber as a successor, but he failed to do so. Instead, Anshu Jain, the head of the Deutsche Bank in London, whom Ackermann hates—some parts of the German establishment also don’t like him I suspect—will take over. Jain seems to be inspired by the purges of another Joseph when it comes to changes in leadership, but one of his favoured minions for the position of risk management (William Broeksmit) was denied by BaFin on the grounds that he hadn’t have enough experience! (this was unprecedented)

There seems to be some fear in the relevant German sources of some kind of a foreign coup that could endanger what’s left from “Deutschland AG”, that web of industry, banks and politics that command Germany.

And I think that Ackermann, at least after the Mannesmann trial, knew what the prevailing opinion about his kind was in Germany.
Jain is obviously not stupid, he knows where he goes, and he is preparing for a battle.
First we take Deutsche, then we take Berlin? What’s the opinion of the Maulwurf?

no probs! There are a lot of folk who weren’t around at the Slog when this article was first published. It is going to take some courage to get rid of that little lot. Not to mention the stock-piles in London.

Another interesting document: “Corporate Europe Observatory, What are bankers doing inside EU summits? Privileged access to EU crisis summits helped the banking lobby avoid paying for their own excesses, January 2012” http://www.corporateeurope.org/sites/default/files/IIF.pdf
Excerpt:”Deutsche Bank and its president, Ackermann, were in December “awarded” the Lobbykratie Medaille, an award hosted by LobbyControl that intends to put undemocratic lobbying in thespotlight. They won the embarrassing award for their lobbying campaign with the IIF to secure favourable conditions for the financial sector in the Greek debt crisis, while misleadingly pretending to be badly impacted by the result.”

The problem seems to me that it is the activities of banks off the books that is the problem here.

I am not saying you are wrong in what you say about Deutsche Bank, but look more closely at what some of the US banks have been up to lately. They are not squeaky clean. Far from it. They are also far from the 80% of GDP. Sadly, it is the other way, bigger not smaller. Not just by a bit.

Bank of America foist $75 trillion in toxic derivatives onto the taxpayer last year. Now that is not much when you say it quickly, but when looked at with some perspective, which the last five months will allow – you will see that this figure is in fact 500% of US GDP. In other words, around 1350% of Germany’s GDP.

Again, one bank. One set of scoundrels using automated systems to generate profits. More from Bloomberg:
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.http://bloom.bg/bank-of-america-derivatives-mountain
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Your analysis is fine as far as it goes. The problem with modern banking is the off-balance sheet dealings. Perhaps Yvette from the 18th floor can elucidate on this, after all, it is “where the action happens” – is it off-balance sheet action? In places as poorly regulated as London, such activities go largely unnoticed.

I have no idea how it is handled in Germany. Many derivatives are banned outright in Germany. Sensible people.

I wonder to what extent Merkel’s actions re Greece etc have been influenced by a desire to protect Deutsche Bank?
Given 20th century history, she wouldn’t want Germany to be seen as the cause of a global meltdown.

Don’t talk about an “anti-regulation attitude” of bankers who obviously were benefitted beyond their wildest dreams by regulations which allowed them to leverage their equity 60 times and more whenever the bank operations were officially perceived as absolutely not risky. Without regulations they would never ever have been able to do so.